Almost all car manufacturers are set to increase the prices of their models. Hyundai will increase the prices of its various models from Rs 6,000 to Rs 8,000. Marutis will cost 2.5 per cent more. Skoda, Fiat, Ford. . . almost all cars will cost more from January.
With the automobile sector booming in over the past 18 months, primarily due to easy availability of car loans, low prices, big discounts and freebies offered by car companies, and the coming of age of the average Indian who wants to upgrade from a two-wheeler to a car, car companies had a great time.
With more and more car manufacturers entering the booming Indian market, which a recent study says could well be the world's largest over the next 3 decades, competition has been at a peak leading to car prices not going up.
But the party, at least for car buyers, if would seem is about to end.
So why are car prices rising?
Analysts say that car prices tend to rise at the beginning of a year in any case, but this time around there is a combination of several reasons that has made carmakers resort to a hike in prices.
Rising steel prices: Prices of steel, which forms a significant part of the components used in cars, have been steadily rising globally. In India too, steel companies have hiked prices and are planning to further increase steel prices.
The reason for this mainly is the recent hike in freight rates (7.7 per cent) for iron ore, coal and fluxes. Other inputs required by the steel industry like gas, etc too have become more expensive thus forcing steel companies to hike prices.
New emission norms: From April 2005, new emission norms -- Bharat Stage III -- will come into effect in India and carmakers will have to abide by these rules to be able to sell their vehicles. But conforming to these emission norms will require huge investment on the part of carmakers, as they will have to spend on new technologies.
Estimates says that car manufacturers will have to invest close to Rs 25,000 crore (Rs 250 billion) over the next 5-6 years to conform to the new stringent vehicular emission norms.
Indian began to adopt European emission standards -- Euro I -- from year 2000 to curb the dangerously rising levels of pollution. This was followed by Bharat Stage II in 2001, but this was only for metros where the number of vehicles is large. However, Bharat Stage II will be applicable to entire India by April 2005.
At the same time, Bharat Stage III emission norms will come into effect in the metros and some other big India cities with a large vehicular population. By 2010, the entire country will have to conform to these norms, while the metros and the big cities will have to move on to Bharat Stage IV norms.
Not only will car makers have to invest to meet these norms, even oil companies, refineries and the government will have to invest up to Rs 60,000 crore (Rs 600 billion) to match the strict standards laid down by the Mashelkar Committee report on National Auto Fuel Policy.
Increasing input costs: Apart from the rising cost of steel, car manufacturers are also coping with rising inflation, which has led to the prices of almost raw material needed for car components going up.
Then there is the matter of rising interest rates that has impacted the entire industry. Added to that is the rising cost of employee compensation, power, advertising, distribution, etc.
Double whammy: And it not the rising car prices alone that will hit the buyer. The soaring prices of fuel -- petrol and diesel, both -- will also deal a nasty blow to the vehicle owner/buyer.
